Steelmakers, dependent on iron ore, seek investigation of mining industry

Steelmakers are fighting attempts by the iron ore mining industry to raise the cost of their main raw material, calling for an investigation of what they claim is an "oligopoly" that inflates prices.

Mining of iron ore, essential for making steel, is dominated by Vale, Rio Tinto Group and BHP Billiton, which control about two-thirds of the $200 billion-a-year industry. Brazil's Vale, the largest supplier, set a precedent this week by ending a 40-year practice of selling ore on a yearly contract at a fixed rate and won a 90 percent price increase from Japanese mills. Vale said it reached agreements with 97 percent of its global clients to adopt quarterly price contracts.

Annual pricing crumbled last year as steelmakers in China failed to agree to a rate with lead negotiator Rio Tinto, followed by BHP's move to cut the proportion of ore sold using the system in the second half. Increased rates for the material has created a domino effect, with steel producers passing higher costs on to automakers and appliance manufacturers.

"There is an urgent need . . . for the competition authorities around the world to examine the market for iron ore and the market behavior of the three companies who dominate the business," said Nicholas Walters, spokesman for the World Steel Association. The 180-member group includes 19 of the top 20 steelmakers and makes up 85 percent of global output.

"There are key regulators involved in this around the world," he said. "Their ears are very much open."

Lakshmi N. Mittal, chief executive of ArcelorMittal, the world's biggest steelmaker, said Wednesday that the company would raise costs by $150 a metric ton this quarter, up 20 percent based on current prices compiled by Metal Bulletin.

"The cost of producing steel is going to go up and will be passed on to customers," Mittal said.

Discussions between Chinese steelmakers and the three iron ore suppliers are still on, according to He Wenbo, general manager of Baosteel Group, which is representing Chinese steelmakers in the talks. "Negotiations with iron ore producers are very difficult. The annual pricing system is a better way to ensure a win-win solution for steelmakers and miners," He said.

Eurofer, a group representing steelmakers in Europe, accused the biggest iron ore suppliers of "illicit coordination of prices" and said it had notified the regulatory arm of the European Commission about possible anti-competitive practices. The group said a shift to shorter contracts for iron ore at higher rates may boost costs for their customers by as much as a third.

"We have an oligopoly controlling the market, and they can therefore dictate prices," said Gordon Moffat, general director of Eurofer. Cost increases "feed through into steel prices and into the finished product market -- cars, washing machines, consumer products."

The European Automobile Manufacturers' Association, which represents companies including Volkswagen and Fiat, said its members wanted European Union regulators to "tackle distortive developments" caused by the changes. Steel accounts for about 10 percent to 15 percent of the manufacturing cost of a car, the association said.

A BHP spokesman in London declined to comment. A Rio Tinto spokesman didn't immediately respond to a message seeking comment. A Vale spokeswoman also wouldn't comment.